The Impact of Digital Transformation on the Energy Industry
In the past, we wanted our energy supplies to be reliable. Let’s go fast forward 20 years... today, we want them to be reliable, safe, sufficient, and green. On top of that, we want to have choices, information, and support.
Luckily, the ubiquity of digital technologies that have affected every single area of our lives is now changing the way energy is produced and stored. So far, the technologies have changed the way we live (smart homes), work (internet), play (video games), and travel (personalization, chatbots), are now on the fast track to transforming the world’s energy systems.
If you look at it from a time perspective, you may think that the energy industry came to the digital economy a little late than others – but it is still catching up fast.
The pace of digitalization puts present business models under review. In this article, we will explain what digitalization means for energy by shining a light on its enormous potential, demand, and trends.
The growing demand for devices and connectivity
Digitalization trends are at their peak. Only in the past five years, internet traffic has tripled. About 90% of data in the world today has been created over the past two years. The numbers go even further – the worldwide annual internet traffic went over the zettabyte threshold in 2017 and is expected to pass 4.2 zettabytes in 2022. Plus, 54% of households now have internet access at home.
Image source: Digitalization and Energy Report
Back in 2001, there were 500 million people on this planet that had access to the internet. Today, this number hit more than 3.5 billion people, which is almost half of the world's population.
According to Statista there are 6.95 billion mobile phone users as of 2020. The forecast suggests that this number will rise to 7.1 billion by 2020 and 7.41 billion in 2024. And just to remind you, the first iPhone came out in 2007. Ok, enough about numbers.
We surround ourselves with more and more digital gadgets, from smartphones to smart watches, to smart home devices. Every device connects to the internet and consumes energy.
How does this huge advance in digital technology impact the energy landscape? This raises a very basic question: are we on the edge of a new digital era in energy? Let's answer this question.
Digitalization – a rising star in the energy industry
A growing trend among energy companies over the last years is to invest in digital technologies. The global investment in digital electricity infrastructure and software has grown by over 20% annually since 2014, reaching USD 47 billion in 2016. In 2018, the energy investment remained at USD 1.85 trillion.
“In 2020, despite lockdowns, construction has continued in many European countries, and some large solar PV (photovoltaic technologies) and offshore wind projects in Spain and the United Kingdom came online in the first four months of 2020.” - World Energy Investment 2020 report.
Still, today’s investment would have to go towards cleaner sources and electricity networks to evolve the global energy sector to the point where it meets critical energy-related goals that align with the Sustainable Development Scenario and the Paris Agreement.
Digitalization’s enormous influence on energy and future predictions
As mentioned before, digital technologies have become very popular and are widely used in energy end-use sectors. Many of these technologies, such as smart home systems or 3D printing, could reduce the production of energy needed for the production of goods and services across all aspects of our lives. Let’s discuss the examples of aviation, transport, and buildings.
Digital technologies are already reducing maintenance costs and improving energy efficiency. Even though aviation is one of the biggest contributors to carbon emission, the latest commercial airplanes, such as the Boeing 787 are extremely connected. In other words, every piece of that plane has an internet connection, from the engines to the flaps, to the landing gear. Big data analytics help pilots make in-flight decisions and reduce fuel use by optimizing the route. On top of that, aircraft manufacturers are already working on zero-emission airplanes to enter the market by 2040.
Yet, the most impactful changes from digitalization could happen in road transport. Connectivity and automation technologies could really transform how we move around. According to the Center for Automotive Research, in the future, cities will be dominated by automated, connected, electric, and shared (ACES) cars. That in turn will certainly shape the future of energy emissions and change the transport industry. Top it all off with the fact that automated driving technologies can positively influence safety and driving convenience through automated machine decision-making capabilities that can assist or even replace human control.
Over the last 25 years, the demand for electricity in buildings has risen and accounts for 60% of the total growth in worldwide electricity consumption. This is caused by the rapid development of the IT industry that has set the trend of large increases in power-generation and network capacity. Take China and India, where only over the last decade, the demand for electricity went up by 8%.
The prediction is that digital technologies, such as smart lighting or thermostats in both commercial and housing buildings could cut the energy use by 10%, assuming limited rebound effects in consumer energy demand. This means that the total energy savings from now until 2040 would amount to 65 PWh – which is just as much as the total final energy consumed in non-OECD (Organisation for Economic Co-operation and Development) countries in 2015.
Where is the energy world heading?
The outlook on the growing demand for energy continues to ring the alarm bell on trends in global emissions of CO2 and the pollutants that cause poor air quality. However, let’s now take a look at some more digital trends that have been around for a while and are making an impact on the way the world uses power.
Artificial Intelligence & Machine Learning
Over the years, Artificial Intelligence (AI) has become more and more popular and essential in the energy industry. Its potential to change the design of the energy system is beyond compare. The digitalization of the energy sector happens mostly through analyzing large volumes of data which helps make the energy industry more efficient and secure. Let’s analyze some examples:
Intelligent Networking - Smart Grids and Smart Meters
With the increasing decentralization and digitalization of the electrical grid, it gets more and more difficult to manage a large number of participants because it requires analyzing a never-ending avalanche of data. AI helps process this data as quickly and efficiently as possible. This is where smart grids become extremely helpful. These networks transport not only electricity but also data.
The Smart Grid, in contrast to the current power grids, introduces a two-way interchange of electricity and data — in both directions — between the power utilities and the consumers.
They react intelligently to the consumption of energy by analyzing and evaluating data. That's all thanks to smart meters, the next generation of gas and electricity meters that send your actual energy usage to your utility provider. Thanks to that, consumers receive actual bills, not estimated bills.
With energy optimization in mind, AI helps improve forecasts that already improve predictions for smart grids' energy outputs. It is simpler to evaluate a large amount of data on a regular basis in electricity trading, such as weather data or historical data. Better forecasts also increase grid stability and supply security.
Smart Home solutions
Thanks to smart home solutions, every consumer can contribute to a stable and green electricity grid, if only intelligently connected in the electricity system.
The pattern is very simple, in such a smart home, all networked devices act upon prices on the electricity market and adapt to household usage patterns to save electricity and lower costs by boosting their output when the electricity is cheap. For example, smart networked air conditioning systems. Such smart devices can also analyze user data and adapt their usage based on user preferences.
Hydropower - the largest source of renewable electricity generation in the world
With the energy-related carbon dioxide emissions on the rise, the need to transition from fossil-fuel dominated energy systems to low-carbon alternatives is now higher than ever before. Hydropower, power derived from the energy of falling or fast-running water, is one of the solutions to this issue. Hydropower technologies have already applied in Australia, China, Costa Rica or Iceland. Apart from these countries, hydropower is changing Africa’s economic and social situation.
According to a report from Voith, a global technology company that equips the world's largest hydropower plants with state-of-the-art technology, hydropower is the largest source of renewable electricity generation in the world representing over 16% of global electricity production – more than all other renewables combined.
The benefits of hydropower include:
- A highly predictable and reliable energy source
- Flood protection and navigation
- Economic growth via trade, transport, and tourism
- Employment and education
- Economic production of “green” hydrogen
Over the next decade or two, digital technologies are predicted to make global energy systems even more connected, intelligent, efficient, reliable, and sustainable. In order to make this transformation happen, decision-makers (government, business) have to understand what digitalization means for energy, the economy, the world, and their own countries or organizations at the end. Once these conditions are met, we are all bound to steer the world towards a more secure, sustainable, and smarter energy future.